A pooled debt instrument known as a sequential pay collateralized mortgage obligation (CMO) amortizes its tranches in accordance with their seniority.
<h3>What is a CMO tranche?</h3>
A pooled debt instrument known as a sequential pay collateralized mortgage obligation (CMO) amortizes its tranches in accordance with their seniority. In a sequential pay CMO, interest is paid on each tranche as long as the original balance is not entirely repaid.
Tranches are segments of a CMO or other debt or instrument that are organized to split risk or classify assets according to attributes. Securities are personalized and marketable to specific investor segments because to this division and portioning.
The specification of the term structure of interest rates and a model for valuing the call risk borne by the various tranches are the two essential components of CMO valuation.
Therefore, the correct answer is option d companion.
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